Tap Into Molson Coors Dividend Growth Outlook

Molson Coors Gives More Reason To Love Beer Stocks

Molson Coors NYSE: TAP  just reiterated its guidance and reinstated its dividend giving us two more reasons to love beer stocks. While the general consensus among the analysts is still neutral towards the group, there is growing evidence in the trend of analyst sentiment and the fundamentals that point to solid upside for these stocks. Molson Coors is expected to report earnings later this month and, in our view, we'll beat the consensus estimates by a wide margin. 

Molson Coors reaffirmed its guidance for the full year which expects mid-single-digit increases in net sales and flat earnings. The takeaway is for us is that, while earnings appear to be under pressure from inflationary forces, the company's revenue is on the rise, cash flow is improving, and so is the balance sheet. The company reported a roughly 7X leverage ratio at the end of last fiscal year and expects to have it down to 3.25X earnings by the end of this fiscal year and below 3.0X by the end of next year. To that end, the company also announced that it repaid all outstanding principal on $1 billion worth of 2.1% senior notes due this month using a combination of commercial paper and cash on hand. 

This bodes well for the dividend which was reinstated at $0.34 per share quarterly or about 2.6% in yield. While down 40% from the prior dividend declared in February 2020, it is attractively placed, well above the broad market average, backed up by improving fundamentals, and comes with a positive outlook for growth. As per the press release, “ the company believes that the dividend is sustainable and gives room for future increases as business performance improves.” We think that will be later this year or early in 2022. 

The Analyst Consensus Is Still Neutral On Molson Coors

The general consensus among the analyst is still neutral on Molson Coors and many of the beer stocks although the trend has been improving over the past few months. In regards to Molson Coors, the company has shed several analysts over the past few months and currently has a hold rating with 4 buyers, 4 neutral analysts, and 2 bears. The consensus price Target among them is $53.45 but there are a couple of caveats to be aware of. The first is that the analysts have a very wide range of targets with the recent high at $74 and the recent low at $35. The second is that the trend in the consensus price target is positive and we expect it to accelerate in the wake of the earnings release.

The company is expected to post $2.80 billion in net consolidated revenue when it reports for the second quarter.  That would be good for a gain of 47% sequentially and 12% from last year. The only negative is revenue is expected to fall 5% in the two-year comparison but we feel these targets are low. Based on our assessment of economic activity, food-away-from-home spending should drive revenue to near or above its pre-COVID levels.

Molson Coors: The Cannabis Opportunity

Molson Coors, like most of the big beer producers, is also a play on us cannabis. The company has a deal with HEXO Corp (NYSE: HEXO) to develop CBD and eventually THC-infused beverages. HEXO just announced it closed on a deal to purchase a production facility in Colorado that it says will help it continue expanding on that partnership.

HEXO Corp CEO and co-founder Sebastien St-Louis: “The facility will also provide us with the necessary infrastructure to continue expanding our joint-venture with Molson Coors to create Truss CBD-infused beverages, while also creating the necessary capacity to support future, non-beverage CPG partnerships.”

The Technical Outlook: Molson Coors Could Be At A Bottom

Price action in Molson Coors moved up by 2% in the wake of the guidance increase and dividend reinstatement. It looks to us like the stock is at a bottom, the question is what kind of a bottom. In the near term, we expect to see price action move back up to the short-term moving average. By then we should have received the earnings report and get a clear indication of what the next move will be. Because we expect strong results, we expect to see the stock move up above the short-term moving average and then trend back up to retest at the recent highs near  $60.